FuncoLand

FuncoLand

Company type	Public
Industry	Retail (video games)
Founded	1988
Founder	David R. Pomije
Defunct	2000
Fate	Acquired by Barnes & Noble; merged with Babbage's to form GameStop
Headquarters	Eden Prairie, Minnesota , United States
Area served	United States
Key people	David R. Pomije (Founder, CEO and Chairman), Stanley Bodine (President and COO)
Products	New and pre-owned video game software and hardware
Number of employees	1,500 (1999)

FuncoLand was a U.S.-based retailer specializing in both new and pre-owned video game software, with its main offices located in Eden Prairie, Minnesota. Established in 1988 by entrepreneur David R. Pomije, Funco Inc. initially operated as a mail-order and leasing business for video games before expanding into a nationwide retail chain.

Following its initial public offering in 1992, Funco saw swift expansion fueled by the growing video game market and a distinctive business approach that enabled customers to trade and sell used games—an innovative edge at the time. Often situated within strip malls, FuncoLand outlets featured demo areas where shoppers could try games prior to purchasing, thereby improving the shopping experience. Their broad selection of older titles attracted clientele from competitors who lacked such extensive inventories. Marketing initiatives included the self-produced monthly publication Game Informer, a mail-order catalog, and an online sales platform.

The mid-1990s brought challenges, including an industry downturn and a 1995 lawsuit from shareholders alleging stock price inflation due to exaggerated claims about information system capabilities; this dispute was resolved privately in 1999. The company rebounded with the arrival of fifth-generation gaming consoles and strong performance from launches such as the Dreamcast, which achieved record single-day sales. By 2000, FuncoLand operated 406 stores and was twice honored by Fortune as one of the fastest-growing companies in the United States.

In April 2000, a competitive acquisition process between Electronics Boutique and Barnes & Noble, owner of Babbage's Etc., concluded with Barnes & Noble purchasing Funco for $161.5 million. The deal finalized in June 2000, and by December that year, Funco was merged with Babbage's to create GameStop.

History

David R. Pomije founded Protectronics in 1985 as a mail-order business primarily selling Commodore 64 computers before diversifying into various consumer products. Despite initial achievements, poor management resulted in a Chapter 7 bankruptcy filing in 1988. Pomije retained an inventory of 1,100 Nintendo games, which he leased to video rental stores. To replenish stock, he began acquiring used games nationwide and launched Funco to focus on buying and selling pre-owned video games through mail order.

By the 1989 holiday season, growth necessitated multiple phone lines and family assistance. In February 1990, Funco relocated to a warehouse facility in New Hope, Minnesota, followed by the opening of its first retail outlet in August. Advertising efforts successfully drew customers from neighboring states. After reaching $50,000 in sales by late 1990, Funco expanded with two more stores in Eden Prairie and Roseville to capitalize on the holiday demand. The company also sponsored local sports broadcasts to boost brand recognition.

By December 1991, Funco operated ten stores across Minneapolis. Pomije attributed their success to strategic hires from companies like B. Dalton and Häagen-Dazs who brought expertise in market expansion and financial management—investments totaling $519,779 in 1992 that fortified the company's operational foundation. By October 1992, Funco had grown to 29 locations spanning Minneapolis, Chicago, and Dallas with a workforce of 190 employees and forecasted $22 million in sales for fiscal year 1993. Pomije set goals for reaching 110 stores and $63 million in revenue by March 1994.

On April 6, 1995, Stanley Bodine was elevated to president and COO roles, succeeding Pomije who retained CEO and chairman positions; Robert Hiben assumed CFO duties while MIS director Michael Hinnenkamp departed the company. During fiscal 1998, Funco introduced the FuncoLand Superstore e-commerce site, generating $300,000 during its inaugural year and increasing sales fourfold to $1.57 million the following year. In April 1999, Funco became an early participant on Amazon’s Auctions platform and collaborated with Navarre Corporation to distribute consumer software through its online channel.

Acquisition and merger

On April 3, 2000, Electronics Boutique Holdings Corp., a principal rival, announced its intention to acquire Funco for $110 million, offering a cash price of $17.50 per share. This development was in line with market anticipations, as Funco's shares had been undervalued for a considerable period. Joseph Firestone, CEO of Electronics Boutique, disclosed that the company had been pursuing Funco for two years, waiting for an advantageous stock valuation. After the announcement, Funco’s share price surged by over 42%, reaching $16.875 per share.

Nevertheless, on April 5, Babbage's Etc., a subsidiary of Barnes & Noble, presented an unsolicited bid of $135 million, payable in cash or a combination of cash and stock. This offer pushed Funco's stock price up to $20.50 per share. By April 12, Funco gave Electronics Boutique five days to counter the proposal before accepting Barnes & Noble's offer. Electronics Boutique promptly matched the bid.

Barnes & Noble then raised its offer to $161.5 million ($24.75 per share) on April 26, providing Electronics Boutique with another opportunity to respond. On May 3, Electronics Boutique withdrew its proposal, and Funco accepted Barnes & Noble’s bid the following day. The initial agreement with Electronics Boutique included a $3.5 million termination fee, which Barnes & Noble paid. Funco’s founder Pomije reportedly earned around $35 million from his shares and options before departing to concentrate on Second Swing, a retailer specializing in used golf equipment.

The acquisition was finalized on June 14, 2000, resulting in Babbage's becoming a wholly owned subsidiary of Funco. By November 2000, Funco’s headquarters in Eden Prairie were phased out and certain operations were relocated to Babbage’s Dallas location; key executive Bodine also left the company. In December 2000, Funco and Babbage’s merged to create GameStop, which went public with an IPO on February 12, 2002. Many retail outlets continued operating under the FuncoLand, Babbage’s, and Software Etc. names until 2003 when all were rebranded under the GameStop banner.

Business operations

FuncoLand focused on retailing both new and pre-owned video games and related hardware, pioneering a consumer trade-in model where used games were bought back at roughly half the price of new copies. Customers had the option to exchange games for cash or store credit, with trade-in values ranging from as low as ten cents up to $55. Pricing adjustments occurred every two weeks, reflecting trends similar to commodity markets. Initially inventory was tracked manually but transitioned to computerized systems in 1991.

Typical store locations averaged around 1,650 square feet and employed between three and five staff members. These outlets were generally situated in strip malls adjacent to prominent shopping centers and national retailers such as Toys "R" Us, Target, and Best Buy. Establishing each store required an investment near $55,000 for build-out and initial inventory stocking, which included approximately 1,700 SKUs—about 10% being accessories—with total inventory nearing half a billion cartridges including rare collectible editions. Competitors occasionally directed customers seeking older titles to FuncoLand stores.

Stores were equipped with televisions showing playable game demos and dedicated areas where customers could test products firsthand. New merchandise came with a standard 90-day warranty that could be extended up to one year upon purchasing cleaning kits. Used games were marketed under the term "previously played" to avoid negative perceptions associated with secondhand products. Marketing strategies heavily relied on television commercials supplemented by newspaper advertising, in-store promotions, direct mail campaigns, and partnerships with game publishers during major releases such as Mortal Kombat and Madden NFL '94.

In 1992, Funco introduced Game Informer, a monthly publication featuring game reviews that reached a circulation exceeding 195,000 by 1999. The magazine was published by Sunrise Publications, a subsidiary of Funco, and complemented a bi-monthly mail-order catalog serving approximately 60,000 customers beyond retail locations. Additionally, the FuncoLand Superstore e-commerce site provided schedules and reviews for games.

By late 1999, FuncoLand employed roughly 1,500 full- and part-time workers supplemented by seasonal staff during peak periods. All retail leases typically spanned three years with options for renewal. The company also maintained leases on a 50,000-square-foot distribution facility alongside its corporate headquarters located in Eden Prairie.

Competition

By 1993, FuncoLand had established itself as the foremost retailer specializing in pre-owned video games, encountering minimal rivalry mainly from local independent stores and smaller regional chains. At that point, the company faced no competition within Minneapolis and Chicago, and only a single competitor in Dallas. FuncoLand’s early market penetration and innovative retail approach enabled it to secure a foothold in key metropolitan regions ahead of more formidable challengers. Over time, the competitive landscape broadened to encompass large-scale retailers such as Target, Walmart, and Kmart; software-focused outlets like Babbage's Etc. and Electronics Boutique; toy store chains including Toys "R" Us and KB Toys; consumer electronics vendors such as Best Buy and Circuit City; department stores; and other entertainment merchandise sellers. Many of these rivals introduced trade-in programs, thereby intensifying pressure on FuncoLand’s market position. Additionally, Funco contended with smaller niche retailers like It's About Games and MicroPlay, alongside video rental chains such as Blockbuster and Hollywood Video that also sold or rented used games.

Store expansion

Between fiscal years 1991 and 1993, FuncoLand expanded its retail presence from three to 56 stores, crediting this rapid growth to the flourishing video game market combined with its distinctive retail concept. The chain’s first location beyond the Minneapolis–Saint Paul area launched in Dallas in April 1992, followed by multiple outlets in the Chicago vicinity later that year. By May 1993, FuncoLand operated 62 stores with a new opening in Crystal Lake, Illinois. Expansion efforts extended to the East Coast by June 1994, covering markets including New York, Delaware Valley, and Washington–Baltimore regions, bringing the total store count to 117. Additional metropolitan areas such as Boston, Houston, and Kansas City were incorporated during fiscal 1995. Although initial plans aimed for 120 new store openings over two years, a downturn in the industry alongside declining stock prices constrained growth to 182 locations by the close of 1995.

Growth resumed in 1996 with an entry into the West Coast market through nine stores in the San Francisco Bay Area and intentions to establish 40 more stores in 1997. Fiscal year 1998 saw further expansion into Greater Sacramento, Seattle, Cincinnati, Columbus, St. Louis, Indianapolis, and Louisville. The chain celebrated its 300th store launch in Nashville during November 1998. Fiscal 1999 witnessed additional market entries including Los Angeles, Hampton Roads, Richmond, Austin, San Antonio, Memphis, and Pittsburgh.

At the time of acquisition in 2000, FuncoLand operated a total of 406 retail outlets. Throughout its history, the company earned recognition from Fortune magazine twice—in both 1994 and 1998—as one of America’s fastest-growing enterprises, underscoring its substantial business expansion and influence within the industry.

Financial performance

Originating as a mail-order operation, Funco achieved revenues of $35,000 by March 1989 and increased to $375,000 by March 1990. Following the launch of a physical retail store in September 1990 combined with an effective advertising campaign, sales surged to $25,000 within just two days. By Christmas of that same year, with three stores operational, sales surpassed $260,000.

On July 2, 1992, Funco submitted an initial public offering (IPO) application for one million shares priced at $5 each to reduce debt obligations and finance further store openings. The IPO was underwritten by Miller, Johnson & Kuehn Inc. and publicly announced in August 1992. The stock price peaked at $17.75 in February 1993 but dropped to $8 by April amid concerns about emerging digital distribution platforms such as the Sega Channel posing threats to conventional retail frameworks.

In December 1994, Funco increased promotional expenditures and reduced prices to combat an aggressive price war initiated by large retailers including Circuit City and Best Buy. This strategy resulted in third-quarter earnings falling short of expectations and triggered a stock price decline of 46.5% down to $5.75 per share. Despite these setbacks, the company projected record-breaking fourth-quarter sales and successfully met its targets for new store openings. However, by April 1995 fourth-quarter revenues decreased by 24%, influenced by strong releases from the previous year and consumer anticipation for upcoming next-generation consoles. Consequently, shares declined further to $3.87 per share. In response, management implemented salary reductions—including CEO Pomije halving his own compensation—and cut headquarters staff by 20% aiming to enhance expense management and improve profit margins.

For fiscal year 1996, Funco reported a modest revenue increase of 1.3%, attributed primarily to margin enhancements and robust sales towards year-end. The stock price recovered from $2.62 in January 1996 to $14.12 by January 1997 driven by renewed enthusiasm for video games fueled by Nintendo 64, PlayStation, and Sega Saturn console launches.

The September 1999 release of the Dreamcast console set a single-day sales record for FuncoLand and contributed to nearly a 50% rise in second-quarter fiscal year 2000 revenues reaching $52.7 million; net income nearly doubled analyst forecasts at $716,000. Nonetheless, December sales softened due to shortages of high-demand products like Game Boy Color and Pokémon Yellow; fewer significant releases for Nintendo 64 and PlayStation compared with the prior year; along with competitors discounting consoles aggressively. Funco anticipated this slowdown would continue until the launch of PlayStation 2 scheduled for fall 2000.

Year ending	Net sales	Gross profit	Operating income	Net income	Total assets	Shareholders' equity	Net income per share	Stores
US$
April 2, 1989	38,842	Template:N/A	Template:N/A	6,622	37,424	6,722	Template:N/A	0
April 1, 1990	299,116	Template:N/A	Template:N/A	3,528	137,667	10,250	Template:N/A	0
March 31, 1991	2,518,985	1 ,172 ,294	92 ,374	84 ,579	404 ,942	94 ,829	0 .03	3
April5 ,1992	7 ,069 ,503	3 ,342 ,989	29 ,721	20 ,527	1 ,974 ,808	202 ,180	0 .01	11
April4 ,1993	20 ,533 ,944	8 ,792 ,599
7 ,553 ,432	4 ,483 ,873
56
April3 ,1994	50 ,490 ,000	21 ,047 ,000	1 ,256 ,000	880 ,000	24 ,707 ,000	18 ,653 ,000	0 .15	110
April2 ,1995	80 ,365 ,000	31 ,285 ,000
23 ,160 ,000	17 ,800 ,000
182
March31 ,1996	81 ,382 ,000	33 ,692 ,000	547 ,000	205 ,000	25 ,668 ,000	18 ,071 ,000	0 .03	173
March30 ,1997	120 ,555 ,000	44 ,436 ,000	7 ,583 ,000	5 ,350 ,000	31 ,745 000   |24 318 000   |0 .86   |188   |-  |March29 ,  1998    |163 316 000     |56 688 000     |13 430 000     |8 270 000     |45 626 000     |33 525 000     |1 .26     |250     |-    |-    | March28, 1999	206, 673, 000	67, 980, 000	15, 601, 000	9, 710, 000	55, 140, 000	38, 836, 000	1 .53	312
April2, 2000	252, 700, 000			6, 700, 000			1 .08

Litigation

On August 17, 1995, a class action lawsuit titled Christopher Cannon v. Funco, Inc. and David R. Pomije was initiated in the United States District Court for the District of Minnesota. The complaint claimed that Funco had artificially boosted its stock value by exaggerating the capabilities of its information systems between May 18 and December 15, 1994. In October 1996, the court dismissed the state law claims with prejudice and the federal claims without prejudice. Subsequently, in January 1997, Cannon submitted an amended complaint invoking the Securities Exchange Act of 1934, requesting compensation and coverage of legal expenses. Following motions to dismiss, the involved parties reached an out-of-court settlement, which was approved on April 30, 1999, for $900,000, from which $202,000 was allocated for attorney fees.